CUSTOMER SATISFACTION IN THE SERVICE SECTOR: A CASE STUDY OF THE

DOMESTIC AIRLINES INDUSTRY

by

Robin Sarkar Department of Management Studies

Submitted in fulfillment of the requirements for the degree of

Doctor of Philosophy

to the

INDIAN INSTITUTE OF TECHNOLOGY, DELHI HAUS KHAS, NEW DELHI 110 016

INDIA

December 2004

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CERTIFICATE

The Thesis titled "Customer satisfaction in the service sector: A case study of the

domestic airlines industry" being submitted by Mr. Robin Sarkar to the Department

of Management Studies, Indian Institute of Technology, Delhi for the award of degree of

Doctor of Philosophy (Ph.D.) is a record of bonafide research work carried out by him.

He has worked under my guidance and supervision and has fulfilled all the requirements

for the submission of this thesis, which has attained the standard required for a Ph.D.

degree of the Institute. The results presented in this thesis have riot been submitted

elsewhere for the award of any degree or diploma.

Date: December , 2004

(Dr. R. K. Baisya) Professor Department of Management Studies Indian Institute of Technology, Delhi Hauz Khaz, New Delhi 110 016

ACKNOWLEDGEMENT

I wish to extend my deepest gratitude to Prof Rajat K. Baisya, Professor,

Department of Management Studies, I.I.T. Delhi. I am deeply indebted to him for his

valuable guidance and constructive suggestions throughout my research period. Despite

his exceptionally busy schedule as Head of the Department, Department of Management

Studies, during most of the period under his guidance, he spared his time and efforts. The

present shape of this thesis would not have been possible without his intensive guidance

and direction.

Under the expert observations of the members of Student Research Committee,

Prof. Sushil, Prof. Rajat K. Baisya, Dr. Kiran K. Momaya, Department of Management

Studies and Prof. S G Deshmukh, Department of Mechanical Engineering, my endeavour

has been rendered into the present form.

This study would not have been possible without the cooperation from the many

airline customers who responded to the questionnaires. I am also grateful to all those

domestic airline executives, including the Station Managers, Customer Service

executives and others who spared their valuable time for the interviews, which gave me

insight into the current situation and challenges of the industry. I am also grateful to all

those who directly and indirectly contributed to the completion of my doctoral study

including the staff members of the Department of Management Studies, I.I.T. Delhi and

specifically Mr Narang and Mr Bose. Our friends, Ranjit and Nivedita, encouraged me to

complete this work with passion and energy. Finally, I wish to express my deep

appreciation of my beloved mother and thank my wife Reema and children, Radhika and

Rahul for their constant inspiration, encouragement and moral support.

-at IP.A. Adhjim4111,

(Robin Sarkar)

ii

Dedicated to the memory of my father, Late Commodore Ananta Kumar Sarkar

Abstract

As economies throughout the world have continued to develop over the last few

decades, the importance of the service sector in the economy has been steadily growing.

In all countries, the share of services in the Gross Domestic Product (GDP) has been

increasing. This is true both for developed countries and for developing countries like

India. Over the past decade, India, with its advantages of a large English-educated work

force, has been earning for itself a special place in the global service sector. Sectors like

software development call centres and other Business Process Outsourcing areas have

been fuelling growth in services in India.

All of these services depend on the transportation sector for connectivity and the

domestic airlines sector is a critical element in the growth of services in India as

economic growth spreads out from the major metro cities in India to the other cities and

towns. The domestic airlines sector was chosen for this research because of its critical

nature, the fact that it is a service industry, the interesting stage of its development in

India at this time and, also, because a comprehensive customer-focussed study on the

Indian domestic airline industry could not be found in the literature.

It has become imperative for the domestic airlines in India to understand the

consumer buying behaviour of their current and potential customers so that they may

develop appropriate marketing strategies in the emerging highly competitive market.

Some of the key questions facing airline marketers are what attributes influence customer

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choice in airlines, how do customers rate the airlines on various parameters, how

important is customer satisfaction to re-purchase intentions, what are the implications for

business performance and is the existing system of measuring customer satisfaction

adequate to drive business decisions. There is an apparent vacuum in the academic

literature on the Indian consumer buying behaviour of domestic air travel. The present

study has been undertaken to modestly fill this gap and analyze the consumer buying

behaviour so as to derive some useful marketing implications for the domestic airlines.

The single key challenge before the domestic airlines is sustainable market share

and profitability. Customer satisfaction is an important lever to drive these business

results. A literature review has been carried out focussing on the various customer-related

areas of service management and, based on the inputs from the literature review, this

study attempts to:

o Investigate the key variables of customer satisfaction for the three domestic airlines,

Indian Airlines, Jet Airways and Air Sahara including customer perception of the

relative importance of these variables

o Look at the impact of customer satisfaction on future usage (used as a surrogate for

re-purchase intentions) and what impact differing consumer characteristics have on

customer satisfaction

• Examine the existing customer satisfaction measurement systems of the domestic

airlines with regard to the dimensions being measured

• Develop a frame-work to analyze the impact of customer satisfaction (both overall

and its individual dimensions) on re-purchase intentions

The research design involved both a questionnaire-based survey and a case study

of the domestic airline industry category. The case study also covered the emerging low-

cost airlines and its implications for the Indian sector. A total of 3 guiding and 37 micro

research propositions were tested and the study findings revealed that there exists a

significant linkage between customer satisfaction and future usage and differing

consumer characteristics was positively related to customer satisfaction. It was also found

that the relative importance of the satisfaction variables was not significantly different for

the various consumer groups.

The results enable the airlines to re-look at their customer satisfaction

measurement dimensions and to see the relative importance of various attributes in

driving customer satisfaction. A comparative analysis of the performance of the airlines

on the various attributes and a frame-work for studying the impact of customer

satisfaction on business performance is also outlined. It is hoped that the findings of this

research study would be useful both for airline marketers and for researchers.

Keywords: Customer satisfaction, Domestic airlines

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CONTENTS

Page Number

Certificate i Acknowledgement ii

Abstract iv

Contents vii

List of Figures

List of Tables xv

List of Abbreviations xix

List of Appendices xx

Chapter 1: Introduction 1

1.1 Introduction 1

1.2 Need for the study 2

1.3 Scope of the study 4

1.4 Customer satisfaction 5

1.5 Research direction 6

1.6 Structure of the Thesis 7

1.7 Concluding Remarks 9

Chapter 2: Literature Review 11

2.1 Introduction 11

2.1.1 Approach to Literature review 11

2.1.2 What is a 'Service' 12

2.1.3 Importance of Services 13

2.1.4 Service management 14

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Page Number

2.1.5 Research in India 16

2.2 Service Quality 18 2.2.1 Service Quality construct 18 2.2.2 Conceptualization and measurement of 19

Service Quality

2.2.3 Dimensions of service quality 21 2.2.4 SERVQUAL model 24 2.2.5 Service Quality Information System 26

2.3 Customer satisfaction 27 2.3.1 Customer satisfaction measurement 30 2.3.2 Service Quality and Customer satisfaction 32 2.3.3 Product and service satisfaction 33 2.3.4 Change in attribute salience over time 34

2.4 Customer loyalty and its dimensions 36 2.4.1 Customer relationship benefits 38 2.4.2 Service: Offering a branded experience 40

2.5 Satisfaction — Profit Chain 41 2.5.1 Linking service actions and profits 41 2.5.2 Economic benefits of customer satisfaction 44 2.5.3 Value of a customer 45

2.6 Observations on the Literature Review 46

2.7 Concluding Remarks 48

Page Number

Chapter 3: Research Design 51

3.1 Basic research design 51

3.1.1 Research design 51

3.1.2 Evolution of the Research 52

3.1.3 Framework of the Research Methodology 54

3.2 Research Objectives and Hypothesis 57

3.2.1 Research Objectives 57

3.2.2 Research Hypothesis 59

3.3 Execution of the Research Study 64

3.3.1 Questionnaire Design 64

3.3.2 Questionnaire validation 67

3.3.3 Sampling methods and data collection 69

3.3.4 Statistical Analysis and Case Study 71

3.4 Concluding Remarks 72

Chapter 4: Research Results - Uni-variate statistics 73

4.1 Introduction 73

4.2 Background of respondents 74

4.3 Descriptive statistics 76

4.4 Relative importance of satisfaction variables 78

4.5 Concluding Remarks 80

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Page Number

Chapter 5: Research Results - Multi-variate statistics 98

5.1 Introduction 98 5.2 Factor Analysis 99 5.3 Results of Factor Analysis 100 5.4 Comparison of Factors with other dimensions 105 5.5 Testing of Hypothesis 107

5.5.1 Multiple Regression Analysis 107 5.5.2 Hypothesis 1: Impact of Consumer Characteristics on 108

Overall Customer Satisfaction

5.5.3 Hypothesis 2: Impact of Overall customer Satisfaction 110 on Future Usage (Re-Purchase Intentions)

5.5.4 Hypothesis 3: Impact of individual satisfaction variables 110 on Overall Customer Satisfaction

5.6 Concluding Remarks 116

Chapter 6: Case Study (Industry category) 128

6.1 Case study -- Introduction 124 6.2 Case study -- Methodology and Analysis 125 6.3 Review of Global airline industry 126

6.3.1 Globalization 126 6.3.2 Attributes of customer choice in the US domestic 128

airline industry 6.4 Review of Indian airline industry 129

6.4.1 Government Policy 129 6.4.2 Market growth 131

Page Number

6.4.3 Measurement of customer satisfaction 133

6.4.4 Bench-marking of domestic airlines 135

6.4.5 Focus on Airlines 138

6.5 Low cost airlines 142

6.5.1 Introduction 142

6.5.2 Low cost airlines — Global 144

6.5.3 Low cost airlines — Asia 144

6.5.4 Low cost airlines — India 145

6.5.5 Operations 146

6.6 Case study — Analysis 148

6.6.1 SWOT Analysis 148

6.6.2 Diamond frame-work 150

6.6.3 Customer process/facility analysis 152

6.7 Case study — Learnings 154

6.8 Concluding Remarks 155

Chapter 7: Synthesis of Study 156

7.1 Introduction 156

7.2 Customer segmentation 156

7.3 Customer satisfaction linkage to 158

future usage

7.4 Results airline — specific 159

7.5 Importance - performance matrix 160

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Page Number

7.6 Attributes: US and Indian domestic airlines industry 162 7.7 Existing customer satisfaction system - Dimensions 163 7.8 Conceptual model for domestic airlines: customer 164

satisfaction linkage to business performance 7.9 Concluding Remarks 167

Chapter 8: Recommendations and Conclusions 169

8.1 Introduction 169 8.2 Summary of research conclusions 169 8.3 Recommendations 173 8.4 Research contributions 176 8.5 Limitations of the research 177 8.6 Suggestions for future research 178 8.7 Concluding Remarks 179

Bibliography 181 Appendices 199 Curriculum Vitae 211

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